Bank deposit insurance programme

• IAS NEXT, Lucknow
• 14, Dec 2021

Reference News:-

The Central government has highlighted the significance of increase in bank deposit insurance cover, in case of problems occurring such as closure, from Rs 1 lakh to Rs 5 lakh. PM Modi is to address the nation on Bank Deposit Insurance.

Background:

Earlier, there used to be a bank deposit insurance cover of Rs 1 lakh for the deposit of the same amount or more under the ‘Deposit Insurance Credit Guarantee Scheme’.

What is deposit insurance? How is it regulated in India?

• Deposit insurance is providing insurance protection to the depositor’s money by receiving a premium.
• The government has set up Deposit Insurance and Credit Guarantee Corporation (DICGC) under RBI to protect depositors if a bank fails.
• DICGC charges 10 paise per ₹100 of deposits held by a bank. The premium paid by the insured banks to the Corporation is paid by the banks and is not to be passed on to depositors.
• DICGC last revised the deposit insurance cover to ₹5 lakh in Feb, 2020, raising it from ₹ 1 lakh since 1993.

Deposit Insurance- Coverage:

• Deposit insurance covers all deposits such as savings, fixed, current, recurring deposits, etc. in all commercial banks, functioning in India.
• Deposits in State, Central and Primary cooperative banks, functioning in States/Union Territories are also covered.

What is the procedure for depositors to claim the money from a failed bank?

• The DICGC does not deal directly with depositors.
• The RBI (or the Registrar), on directing that a bank be liquidated, appoints an official liquidator to oversee the winding up process.
• Under the DICGC Act, the liquidator is supposed to hand over a list of all the insured depositors (with their dues) to the DICGC within three months of taking charge.
• The DICGC is supposed to pay these dues within two months of receiving this list.

The DICGC does not include the following types of deposits:

1. Deposits of foreign governments.
2. Deposits of central/state governments.
3. Inter-bank deposits.
4. Deposits of the state land development banks with the state co-operative bank.
5. Any amount due on account of any deposit received outside India.
6. Any amount specifically exempted by the DICGC with previous approval of RBI.